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What Is Pari Passu Intercreditor Agreement

What Is Pari Passu Intercreditor Agreement

When it comes to financing, an intercreditor agreement is an essential component. It is a contract that outlines the relationship between multiple lenders who are providing loans to a borrower.

One type of intercreditor agreement that is becoming increasingly common is the pari passu intercreditor agreement. But what exactly does this term mean?

Pari passu is a Latin phrase that means “on an equal footing.” In the context of an intercreditor agreement, it refers to the fact that all lenders involved in the agreement have equal priority in terms of repayment.

This means that if there are multiple lenders providing loans to a borrower and the borrower defaults on those loans, all the lenders will have an equal claim to the assets that the borrower has pledged as collateral.

In a pari passu intercreditor agreement, the lenders agree to share equally in any proceeds from the sale of the collateral. This is different from other types of intercreditor agreements, where one lender may have priority over others.

There are several benefits to using a pari passu intercreditor agreement. For one, it can make it easier to attract multiple lenders to a financing deal since everyone is on equal footing. It can also simplify the process of distributing the proceeds from the sale of collateral, as all lenders are treated equally.

However, there are also some potential downsides to using this type of intercreditor agreement. For example, if there are multiple loans with different interest rates and repayment terms, it can be challenging to distribute the proceeds in a fair and equitable manner.

Overall, a pari passu intercreditor agreement can be an effective way to manage multiple loans from different lenders. As with any legal agreement, it`s essential to work with an experienced attorney to ensure that the terms of the agreement are clear and enforceable.

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